A target range alone does not describe the prices offered through central-bank operations. On March 15, 2017, the FOMC raised its federal funds target to 0.75–1 percent. The accompanying implementation note paired that decision with 1 percent interest on required and excess reserve balances and a 0.75 percent overnight reverse-repurchase offering rate, effective March 16. [monetary20170315a][monetary20170315a1]

The reverse-repurchase offer came with constraints. Transactions were limited by available Treasury securities held outright in the System Open Market Account and by $30 billion per counterparty per day. Operations lasting longer than overnight were allowed to accommodate weekends, holidays and similar trading conventions. The headline rate therefore cannot be treated as an unlimited offer with identical terms for every participant. [monetary20170315a1]

The economic mechanism is a set of administered alternatives around the target, not an instruction that every market transaction must occur at an exact price. Our reading focuses on incentives: the terms available through reserve balances and reverse repos help explain how the Fed sought to implement its stance. The documents themselves do not demonstrate a guaranteed hard corridor or report the resulting trades. [monetary20170315a][monetary20170315a1]

There was also no announced halt to Treasury rollovers or agency mortgage-backed-security reinvestment. The short-term rate change and the continuing portfolio policy coexisted. For readers testing the market mechanism, the next evidence would concern actual operations and rates, not an assumption that all funding prices moved together. Retail deposit offers are another question again; these institutional settings do not fix what an individual saver receives. [monetary20170315a][monetary20170315a1]

Source documents

  1. Federal Reserve issues FOMC statementhttps://www.federalreserve.gov/newsevents/pressreleases/monetary20170315a.htm
  2. Implementation Note issued March 15, 2017https://www.federalreserve.gov/newsevents/pressreleases/monetary20170315a1.htm